The fiduciary elephant

Let's address the elephant in the room. ERISA's myriad of requirements and corresponding fiduciary status have scared away more than a few benefits brokers over the years.

Twenty, 10 – or even five years ago, I would have agreed that a deep understanding of ERISA was a baseline requirement essential to sell 401(k) plans. Today, that's no longer the case if you work with the right provider.

Lately, several 401(k) providers have developed turnkey product offerings that perform many of the ERISA-required fiduciary functions. In other words, as the plan advisor, a deep understanding of ERISA is less important as long as you help your client:

• Choose a 401(k) provider who will perform these functions

• Monitor and document the 401(k) provider's activities as they relate to fiduciary duties.

A quick understanding of ERISA

You're probably asking how is a quick understanding even possible? In the context of ERISA, a plan fiduciary must act as a “prudent 401(k) expert,” making informed decisions in the best interest of all affected employees. While this might sound daunting, meeting the “prudent 401(k) expert” standard can be achieved by hiring people who have the expertise. The misleading part is in the definition and the use of the word “prudent” or the “duty to act prudently.” “Prudence,” as it relates to ERISA, focuses on the process of making fiduciary decisions, not the results of that decision.

ERISA acknowledges that it's not reasonable to expect a business owner to possess the professional knowledge necessary to make every 401(k)-related decision. ERISA allows for a 401(k) fiduciary (for example, the employer) to outsource these duties to a third party. When outsourcing fiduciary duties, the crucial act is to document decisions and the criteria used for making the decisions. It is important to note that an employer who has overall responsibility for a 401(k) plan cannot completely bypass its fiduciary responsibility. Rather, the fiduciary can outsource the day-to-day activities and, instead, focus solely on the monitoring of the third party.

Selecting the right provider

Many 401(k) product offerings have included investment-related services to allow an employer to transfer some or all of the fiduciary exposure related to selecting the plan's investment offerings. These services arise under either ERISA Section 3(21), where a fiduciary adviser provides recommendations to the employer, or ERISA Section 3(38), where the fiduciary advisor has complete responsibility to select the plan's investment line-up.

More recently, a few 401(k) providers have expanded their product offering to include fiduciary administrative services. The new services, arising under ERISA Section 3(16), shift the responsibility of performing certain required duties from the employer to the 401(k) provider. These administrative duties include the distribution of participant notices and processing of plan distributions, e.g. hardship withdrawals and loans.

When selecting the right 401(k) provider to perform fiduciary investment or administrative duties, there are two key questions a benefits broker should keep top-of-mind:

1. Does the 401(k) provider offer transparency by making it easy for you to help the employer monitor and document the provider's activities?

2. Is the 401(k) provider willing to stand behind its fiduciary commitment by accepting financial liability in the case of error?

Adding value and diversity to your business

If partnering with the right 401(k) provider can help cover ERISA investment and administrative issues, think of the value you can bring to your clients as employers and plan fiduciaries. It's the same value that you bring them today in selecting the best healthcare and worksite benefits for their employee demographic. Think of it this way – 401(k) plans are just another form of group employee benefits. So, there's a natural synergy with your business model. You're their trusted advisor who can perform the required due diligence to help them select and monitor the right 401(k) provider.

More importantly, if employee education and support is a strong part of your current value proposition as a benefits broker, you can play an invaluable role in helping your client's employees maximize the benefits of their 401(k) plan. The best designed and administered 401(k) plan is worthless without high participation rates, strong salary deferral rates and properly diversified asset allocation. Your expertise in working with employees, combined with the 401(k) provider's education tools and support can be an extremely effective combination.

Whether its pressure relating to your benefits business or your desire to enhance and grow your business, now is the perfect time to give another thought to selling 401(k) plans. You can start by finding a 401(k) provider who will take the time to help you better understand how the provider's product can work within your business model. You won't just be helping your own business's bottom line. You'll be simplifying your clients' lives and reducing their fiduciary liability – all while helping their workforce become better prepared for a long and enjoyable retirement.